Services survey points to quarterly GDP growth

4 May 2017

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• Services upturn in April caps a hat-trick of stronger PMIs
• Consistent with GDP growth picking up from Q1’s pace
• But exclusion of subdued retail sector probably flatters picture

Martin Beck, senior economic advisor to the EY ITEM Club, comments:

"The headline activity balance from the CIPS services survey rose from 55.0 in March to 55.8 in April, its highest level for five months. Digging into the detail, the pickup in the headline balance was underpinned by strong growth in new work, though there was a clear distinction between the strength of business-to-business demand and the much softer picture from consumer-facing firms. And with selling prices rising at their fastest pace for nearly nine years, there is no sign of any let-up in the pressure on household finances.

"The services survey completed a hat-trick of stronger results across the three sectors which, based on past form, would be consistent with a pace of quarterly GDP growth of around 0.6%. However, the relationship between the CIPS surveys and the official data has been very patchy of late and, given that the struggling retail sector is not covered by the CIPS surveys, the true pace of activity is likely to be a little softer.

"The picture from March’s borrowing data was more mixed. On the plus side, net unsecured lending picked up and is now back running in line with the six-month average, suggesting that consumers still have some appetite to borrow to offset higher inflation. But set against this, there were further signs that the housing market is losing momentum, as the impact of the real income squeeze and weaker employment growth takes hold."